Schroders manager Nick Kirrage has said investors make the mistake of overpaying for good companies far too often.
Mr Kirrage, who co-manages the group’s £1.1bn Income and £304.8m Recovery funds, told
the Joint Investment Forum that paying a cheap price for a stock was “undoubtedly the most important factor” when making an investment decision.
“People confuse good companies with good investments and forget about the price,” he said.
“Diageo is an amazing stock but it could be a decade at least until you see returns because you overpaid,” the manager said.
He also cited pharmaceutical giant GlaxoSmithKline as another example of a business with good fundamentals which had historically not provided decent returns due to its consistently high price.
Mr Kirrage said he was not interested “in short-term start-ups”.
Instead, he said, one of his favourite stocks was UK supermarket giant Morrisons – which he believed had fallen “desperately out of favour” with weak trends and a persistently low valuation.
He added that the supermarket, which was the 10th largest holding in the Income fund as of December 31, was a robust company that was conservative about expansion.
The manager added that his Income fund had a “very, very long-term” focus, holding stocks for an average of five years.
According to FE Analytics, Schroder Income currently ranks top quartile in terms of its returns in the past five years and the past one year, although its three-year performance ranks it third quartile as at January 22.
Schroder Recovery ranks as top quartile in five, three and one-year terms.Mr Kirrage said challenging the market consensus was “easy to say but hard to do, especially when performance is weak.”